Explained | Pandora Papers: How the rich hide money in tax havens

In most countries, the ICIJ stresses, it is not illegal to have assets offshore or to use shell companies to do business across national borders

The Pandora Papers leak is the latest -- and biggest -- to shine a light on tax evasion of the rich and powerful from the whistleblowing International Consortium of Investigative Journalists (ICIJ).

The investigation is based on the leak of some 11.9 million documents from 14 financial services companies around the world.

Also Read | Pandora Papers: The latest mega leak on tax-dodging

More than a dozen heads of states and governments, from Jordan to Azerbaijan, Kenya and the Czech Republic, have used offshore tax havens to hide assets worth hundreds of millions of dollars, according to the far-reaching new investigation by the ICIJ media consortium.

Some 35 current and former leaders are featured in the latest vast trove of documents analyzed -- facing allegations ranging from corruption to money laundering and global tax avoidance.

Indians named in the leak include Anil Ambani, who declared that he was bankrupt in a UK court, has been found holding 18 asset offshore companies; Nirav Modi’s sister, Kiran Mazumdar-Shaw’s husband also own offshore trusts.

In most countries it is not illegal to have assets offshore or to use shell companies to do business across national borders.

Read more: Pandora Papers leak: Here are the biggest revelations

The expose’ has come at the time the global bodies are trying to bring a compliant tax regime. Even after dozens of crackdowns on money laundering, the rich have found their ways to hide their dirty laundry.

Read more: Jordan King's property abroad not a secret, claims Palace

So, how do individuals transfer money to offshore companies?

1. Picking a tax haven

Tax havens are countries that levy a minimal rate of tax for foreign officials on their bank deposits and businesses. So individuals keep their money in such havens to avoid paying chunks of their earnings as taxes.

There are dozens of tax havens around the world. Some of them are Samoa, Belize or the Cook Islands, besides larger tax havens like the British Virgin Islands, Switzerland, the Channel Islands, and most are in the Caribbean.

2. Creating a trust or other entity

A trust, a company, a yacht, an expensive painting can be bought with the help of offshore investment advisors. In most of the tax havens, these properties can be approved in as little as three days for a nominal fee depending upon the tax haven.

Also Read | Explained | What is the Pandora Papers exposé?

The rich can own a private non-profit organisation in an offshore haven which will add another layer of secrecy to a tax-evasion scheme.

3. A secret identity

In offshore havens, the owner or the company appoints one or more ‘nominees’ to run the business in that place. These nominees don’t manage the money directly but on paper, it seems as if they are the owners of the company.

4. Opening a bank account

To further save themselves from the tax regime, billionaires open a bank account at a different place than where the offshore company is registered. This helps them to keep an easy flow of money without getting caught.

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5. Moving the money

The most common way to move money from one country to another is smuggling. Another way of cheating is to get a fake offshore company or person to sue them and then ‘settle’ out of court for a larger sum.

6. Spending the money

Spending the money is the trickiest part because tax authorities have been known to crack down on fake credit and debit cards. Some wealthy individuals or companies easily relocate to other tax havens or take part in gambling schemes.

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